Transcript
0:00 I yelled at the b the guy at the bakery today downstairs >> here. >> Yeah. I go I'm in there every week on Thursday. I have no time for lunch. >> So I get a stupid blueberry muffin and a black coffee to wake up. >> They have They ring me up. They have no blueberry muffins. Okay, fine. What What do you have? Lemon poppy. Of course you do. >> Yeah. Who wants lemon? >> Who would buy that?
0:22 >> Uh fine. I don't care. My I get upstairs. I realize the coffee is ice cold. undrink like undrinkably cold. >> All right. So, you microwave it. >> I I emailed I never do this. I email a guy. I'm like, "Yes, he does." No, I don't. Here's the situ. No, I don't. I just let it go. I'll just never go back. I'll never go back. >> But I'm like, "What do you want? What do you want to do here?"
0:42 >> You know what I mean? Like, >> well, I'm in there every week. >> Who are you emailing? >> The owner. I found the owner. I found the owner's email. >> Sick. >> I was telling I was telling Josh, I was speaking an hour ago about how I'm trying to BE NICER. LEMON POPPY MUFFIN. CAN YOU IMAGINE >> just in life just generally speaking, you know, like just give people >> in this economy >> and not assume the worst always.
1:01 >> It feels good to be nice. >> Trying to be nice and Josh going the other way. >> Um, so >> the gloves are off, but but Brian, it's hard because last night, for example, I was at the Knicks game. >> So jealous, by the way. >> Well, I left This is my redemption. I left game one of the Cav series when we were down 22. >> No, you didn't. >> I did. >> Okay. >> I did.
1:20 >> Um, and last night and listen, I I think that people are trying to be nice. They're trying to like be in on the action, right? It's fun. Like, oh, Michael's at the game. I'm He's I know he's a big Nick fan. Uh, are you at the game? But like I had a few people text me like acquaintances. >> Are you at the game? This is when we were down 25. Are you at the game? Yes.
1:36 Yikes. >> Yikes. >> Dude, right. >> Like why would you do that? >> I don't feel bad enough already. >> Why would you Why would you say that to me, right? >> So, anyway, I appreciate all >> What do we What do you think they think the reaction is going to be? >> I I don't know. I think >> you think anyone wants that text? >> No, I I don't think I don't think that they're thinking that. Oh, like maybe like Michael isn't genuinely die hard.
1:57 He's probably not having a great time right now. And or the people that are texting you like during the game are probably not thinking like maybe just let him enjoy the game. His phone's probably blowing up. So, I do it's nice like people are trying to be nice. So, I do appreciate that. >> They're trying to connect with somebody at the game. >> So, I I'm trying to not be like, you know, be nice. Um but I really appreciate all the people that didn't text me. Right.
2:16 >> Right. That just like let me be. >> Yeah. Don't Don't contact me. I'm miserable. >> Anyway, so last night was it was like my wedding night. best night >> in the sense that it was No, let me let me let me go on. >> So, nothing happened. >> It was it was just a euphoric blur that I woke up and I was like, "What the like?" So, I need to I need to record the game. I I recorded the game. I'm going to watch it when I get home tonight, the fourth quarter, cuz it happened so fast in the moment. I just completely It was an outer body experience.
2:44 >> Of course. Of course. I was just doing math the whole night, right? Like, how how much are we down? How much how did we get there? >> So, here's what happened. I heard Will Bond say this this morning in terms of like because literally how did that happen, right? They were up 29 points. How did they blow the lead? >> They hit eight field goals in the second half. That's how it happened. >> No, here's how it happened.
3:02 >> Specifically, they took 12 threes in the second half with more than 10 seconds on the shot clock, which is coaching malpractice. You're up 20 points. You cannot take threes with 10 plus seconds of the shot clock. And they made one of those shots. >> One of those shots. And they um Dear Fox went for the layup with 11 seconds. I mean, that's just It's Yeah, it's not practice. >> Boner of the decade. >> What's weird is that they're not a poorly coached team.
3:25 >> Like the Spurs are not up until up until what we saw last night, >> right? >> I wouldn't say that they're expertly coached, but that's that's like a very weird series of things that most teams would never do. >> I think they were trying to step on the throat. >> They were they went for it, >> right? They went for it. They weren't resting when just step on the throat. Let's let's get this done and get on to game five. And they missed a lot of open shots. Well, they were lights out the first half. They played every minute of the game except for one minute. One they rested them one minute, >> right? Well, you could tell by the end >> they were they were they were missing open shots. So, they were good looks.
4:00 But the other thing is, and I didn't watch the game, re re-watch the game yet. I think they only called one timeout in the fourth, >> which is crazy. >> Like, how do you not stop? >> You got to stop the momentum. >> Like immediately. Immediately. We hit another three. Timeout. Josh Hart's three at the top of the key to put it down 15, I think. Timeout. And they did it once. It was It was It was inexplicable. Anyway, so Nick Knicks fans are psychos, I was telling Brian.
4:20 Um, so I got my tickets to to OKC and San Antonio a month ago just in case. Um, and so they ran out of direct flights. Now it's like the the one or two stops to San Antonio. You go through Orlando, Atlanta, whatever. Then that gets sold out. Then people are flying into Austin. Um, Jonathan Boyard texted me this morning. He's going into Houston. I said, "Why are you going to Houston? It's a three-hour drive. Go to Austin." He's like, "Dude, there's no flights. There's more flights to Austin." Yeah, >> I would I would imagine that that arena will be 30% Knicks fans.
4:49 >> He was Mike was saying higher. >> Well, >> no, I said no, last night. >> Last night I saw that 40% of the sales on tick pick or it was 30 some% were from New Yorkers. >> Excuse me. On what? >> Tick pick. >> So I uh I was at I was at one of the Philly games I would say 40% Knicks conservatively like my entire section was Knicks. people that live in Philadelphia that are originally from New York, people that came from New York, people that came from other places that are Knicks fans to Philadelphia.
5:16 San Antonio is further than Philadelphia. I honestly don't even think it's going to matter. >> It's not going to matter. And if you think Knicks fans or New Yorkers were insufferable before this, just wait. >> Now, do they sell do they sell Timothy Shalamé front row seats? >> Probably not. >> I don't know. >> They push they put him back a row, right? >> Who are the San Antonio celebrities? Like Yose Sam? Like I don't even know who the [ __ ] would be in that front row.
5:38 This guy. >> Oh, honestly like I'm trying to I'm trying to >> J.R. Yuing. >> No. Uh Davy Crockett. >> Davy Crockett. >> Like like literally the Alamo. >> The Alamo. Yeah. >> Last night there was I saw Oh, Tim Duncan. >> There you go. >> No, he's he's he sits on top of pop there. I saw and I was one of them. There was a lot of people crying. Like it was even this morning. This morning my wife is like you're crying again.
6:01 Again. It's just it was it's a lot. It's a lot to process. Well, it's like his wedding night. >> Yeah. Yeah. >> You cried on your wedding night, too? I I I've been told. >> I did. >> All right. Uh, round of applause for Michael Baddock. His dreams are coming true right before our eyes. I'm a Knicks fan, but Michael is a Knicks fan. You're like almost You are a Nick. He's at that level. All right, Mr. Mr.
6:25 Cole, get a get a good one of me this week. Wait, wait, come back. Come back. Come back. >> Let's do Let's be >> That was a failed intro. I don't think we've had that before. >> Let's be deliberate. Let's be deliberate. >> Uh, that was a coaching malpractice. >> All right, come on. I want to get a good picture cuz I'm always looking to the side. Everyone always says >> you still are. >> Yeah, you're getting like these profile shots of me. Like these Alfred Hitchcockesque profile shots. I'm much better head on.
6:51 >> All right, let's do the show. John, click it up. Let's go. All right, friends. Episode 246. This message is brought to you by Fidelity Investments. When timing is everything, you need powerful tools and research that can meet you in the moment. With the allnew Fidelity Trader Plus platform, your charts and preferences show up consistently, synced up across all your devices, so you can act fast whenever and wherever you're trading. You can save and order on your desktop at home. Get a mobile alert when you're at work and complete the trade in the Fidelity app without starting over.
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8:12 Go New York. Go New York. Go. You guys, we have an we have a brand new guest with us this week. First time listeners, first- time viewers. My name is Downtown Josh Brown. My co-host as always, Mr. Michael Batnik. Hello. Hello. The whole compound team is here. Sean's here. Nicole's here. Duncan's here. And we are blessed. We have Brian Lean in the house. Brian is the chief global market strategist and head of strategy and insights at Invesco. Welcome to the show, Brian.
8:45 >> My pleasure. Thank you for having me. Hell yeah. Brian joined Invesco when the firm combined with Oenheimer Funds in 2019. He started at Oenheimer Funds in fixed income product management in the year 2000 and then moved to the macro and investment strategy group in 2005. He also attended in person the 1970 Knicks finals. Is that what you told me before? >> I think my father. >> All right, dude. It's a pleasure to have you. Um, >> it's my pleasure to be here. Thank you.
9:16 it occurred to me I don't I like Invesco is such a huge brand in our business everybody knows the Q's everybody of course um but like just in a nutshell what is the Invesco superpower like what do you guys besides just the Q's what do you think you guys stand for and what do you think um is the thing that sets you apart in the asset management world >> we we offer a significant array of great products we're one of the largest ETF shops in the industry private market business, active fundamental equity, um a large fixed income business with a big municipal bond shop. So, we we offer products um that serve our clients. I mean, we if if if you're looking for it, we likely have it.
10:00 >> Okay. And you have been there since almost the beginning like what's the origin of the firm prior to its current incarnation? >> So, I was with Oppenheimer Funds. I was with Oppenheimer funds for almost 20 years and we were acquired by Invesco in 2019. Um, and if Invesco is there's some pretty big names that are now part of Invesco, whether that was AIM, whether that was Vancampen, you know, some names that investors know for you know a variet for a long amount of time um is under the Invesco umbrella.
10:30 >> I think I can reveal this without getting anyone in trouble at this point. Certainly the statute of limitations has run out. The funny thing about Oppenheimer funds from my own personal experience and you probably know this um is that there was a brokerage firm totally unrelated. >> Correct. Oppenheimer still exists. >> Yes. >> Okay. Good guys. >> But I knew a lot of Oppenheimer brokers who would pitch Oenheimer funds >> and give the client the impression like that.
10:58 >> Oh, that's funny. >> These are our funds. >> So we had it different. And so you remember when Meredith Whitney made the big call on the banks, she was Oppenheimer and company. >> That's when it was like CIBC Oppenheimer or whatever >> and people would call us looking for Meredith Whitney, >> right? >> And we would say, "No, she doesn't work here. >> She doesn't work here. >> She doesn't work here." >> Yeah. Can you believe it? There's two different Oppenheimer companies on Wall Street.
11:18 >> Right. >> Okay. All right. If one of them were to change their name, which one would it have been? >> Which was the real one? >> We would The funds was the real one, right? Totally the real one. >> All right. Shout >> the right way to invest. Shout out to Shout out to Oppenheimer. Just just uh >> of blessed memory. >> Yeah. Just Well, you are Oenheimer, but the other one's still here. All right.
11:37 Uh let's start with this. The most crowded trade in the market. Michael, take it away. >> So, um you know, I just want to say people see me typing on my computer sometimes while Josh is talking. What is he doing? Is he texting? He's no doing work group on Reddit. So, I was just looking at Appa probably really of nothing that we're about to speak to, but one of your one of the suites uh of ETFs that I love to look at are the equaled ones, not just RSP, >> but like all of the other ones. So, I was taking a screenshot. I asked Claude, "How much uh how much money is in these funds total?" And it says about $7 half billion. I don't know if that's high or lower than I would have thought. Like the equal weight technology, the the staples because we look at RSPS all of the time, right?
12:15 >> All of the time. Because XLY is a hugely flawed product, >> I think. >> Yeah. and you want to get a sense breath of the market, right? You're following it. How are how is it performing um relative to the market cap? I'm watching it all the time also. >> Yeah. So, anyway, we're fans of that. Okay. So, not that this is news to anybody, but this is so obviously the AI or nothing bull market. And I don't just mean the stocks and their prices. If you look at the actual earnings, so this is from Jim Jim Paulson. Chart on please, John, or Daniel. um the S&P 500 new era sectors trailing 12-month EPS and we could you know we all know what's in there versus the old sector trailing month EPS and this goes back to 2022 um so so he said many investors suggest the bull is doing fine because S&P 500 earnings continue to rise while this is true earnings for most companies are actually below where they were at the start of this bull market. So I would ask you um I think probably the interpretation is that this is bearish because it's it's only one area doing all the heavy lifting. What if the red line, forget about catches up, but what if that gets gets a lift from all the AI productivity, >> right? And I think it's starting to happen. If you actually look at the first quarter of this year, you had earnings across most sectors posting very strong gains. So it was seven of the 11 sectors posting double digit earnings growth. nine of 11 positive earnings growth or maybe even 10 of 11 positive earnings growth. So it is broadening out. The interesting thing for the second year in a row we really were at a point where we expected the markets to broaden out and it was starting to work. Two years in a row a policy decision disrupted it. So you've seen um other parts of the market you've seen small cap earnings start to pick up and the markets have responded. Um but yeah, I mean it's a it's an environment where the world is adjusting to a very substantial structural change that I think even goes beyond what investors had anticipated in the beginning of the year with regards to the AI build.
14:18 >> The S&P is up 11% year-to- dateish. The MAG 7 are negative on the year as a group if you equal weight them. Very strange. And then I I read 40% I didn't double check it. shadow of 40% of S&P stocks were negative on the year. So to Michael's point, there's extreme concentration happening in this AI capex story and it does touch a lot of sectors. Think about it like utilities are in there, materials are in there, >> like uh are in there. So, uh, so it's not just tech, but, um, it's one story.
14:57 Like, if if you find if you find a stock that's up 20% on the year, if it's not a biotech that just got approval for something, it's probably AI related. >> And I think that's the when we say like the most crowded trade, well, why is everyone crowding in there? It's literally where the earnings growth is, and it's where the revenue growth is. And why wouldn't they want to own those stocks? So, that's the story to me of the first half of this year. What do you do do you take issue with any of that or >> I don't although I would say there's really been two stories that have unfolded since the beginning of the year. You had the first one and if we look at our leading economic indicators the global economy moving into an expansion while the Federal Reserve is going to lower interest rates. So that's quite bullish and that suggests broader market participation. If you think of the first few months of the year, we had a nice feel of that. You had a a pretty decent environment going on. The war in Iran stopped it. similar in yeah the beginning of March similar to the way liberation day stopped it in 2025. So when I say two years in a row we made a policy decision that disrupted what do other parts of the market need like if you're going to be in a slow growth world everyone's going to keep bidding up growth where they could find it. If you can get in an environment where you have fiscal stimulus Fed cut Fed cutting interest rates global economy picking up that's when more companies can participate. So, we stalled it here um you know for for certainly parts of the S&P 500, but I I wouldn't underestimate small caps doing well this year.
16:26 Emerging markets, of course, emerging market, >> what do they what do they need? >> What do small caps need? What are the rest? What has we're going to talk about some you wrote about bare market narratives and we're going to touch on that later. So, I don't want to step on that, but what do we need to see in the second half the resumption of what you just pointed out? like the we had this we had this broadening trade two years in a row. Something weird happened in the spring out of nowhere. Stopped it dead in its tracks, right?
16:53 >> And we went back to a AI. >> It went to slow growth slow. >> What do we need to reverse that so that we're not looking at 40% of the market negative on the year? Like what has to happen? >> Oil prices peaking, which I believe they have. Um interest rates peaking, which I believe they have. Inflation expectations peaking. um and a Federal Reserve that can get back on its easing stance. So, a lot of that has to do with the straight of moves, what's going on with Iran, and can we get past that? So, the good news from a from a market perspective is the market's moving on.
17:24 If we think about each of those things peaking, um but you need the real economy to get support from that. So, the market is believing we're going to get to a better place when you think of oil inflation expectations, rates coming down, but the but the broad macro backdrop um is weak as a result and and the Fed's on hold as a result. >> So, there's two interesting things happening at once. I'd love to get both of you guys what you think.
17:49 >> Um the oil price spike from the uh from the Iran war, it's like it really threw a monkey wrench into everything because it did two things. The first is obviously it screwed it screwed up the broadening trade. Correct. >> And it took like a whole chunk of the market down and and these were stocks that were starting we were starting to see the 52- week high list expand. >> Yes. >> And that totally went into reverse. So it did do that >> and then simultaneously it raised inflation expectations even though oil is one input. Yeah.
18:22 >> It kind of brought like CPI back into the the focus again. Correct. It it knocked the Fed rhetoric on on its on its heels. And so like the whole housing component of the stock market, throw it out. Like like it's forget it. >> Financials, you're going to flatten >> got kneecapped. Real estate like real estate up until recently. There's some weird reasons why. Insurance like all of these different categories of stocks and they're huge categories of stocks got blown up by this oil price spike. And so I feel like if that goes into reverse, >> that goes into reverse.
18:58 >> It would make sense to see people say, "Okay, great. It's game back on." >> What's happening right now? Look at this chart. So this is Russell 2000 divided by the S&P 500 and this thing is is >> looks like it's cooking >> and look it looks like a major major breakout is coming. >> Correct. And that's the peak in oil prices. That's the peak in inflation expectation. I mean, the reality is you get a CPI report a few days ago, um, and investors worry because it's what, 4% or so. I mean, where did we think it was?
19:26 We knew that's where it was going. I've never been concerned about the headline number. I'm far more concerned about what the bond market is telling us about inflation. And coming into the year, you had a 5-year break even, probably around 215, right? That's I like that. I I I can sleep very well at night with a 2-year f um with a 215 break even. you move to 265 or so, that starts to get a little bit worrisome. We're back at 250.
19:52 And so the bond market's telling you you have price stability, which means you're not going to get rate hikes. Um, >> right. We don't have wage growth as a component of the inflation. >> No, >> that's not what's happening. >> That's not what's happening. You have a price shock. >> That was the problem we had four years ago. We don't have that today. No, >> we have the price shock. >> Right. >> Okay. >> Right. And if you think about when the problem became more critical 5 years ago or in 2022 was when the 5-year break even broke above 5%.
20:21 >> Yeah, >> that's I mean I'm sorry 3%. That's the pro 5year goes above 3%. That's the problem. You have to start tightening interest rates. We know when you tighten interest rates bankers tighten lending standards, credit spreads blow out. That's how end of cycles happen. That's not what this is. If we were if we were to uh end the year today and somebody would would say use one word to describe what worked in the markets in 2026, what word would you use?
20:48 >> AI. >> What would you use? >> Memory. >> Growth. >> Momentum. Momentum. >> Ah. Yeah. >> Ah. >> Yeah. >> Which brings which brings us to chart two. >> Oh, it's synonymous. All of the momentum is AI. But go on. >> It's it's synony right. It's uh >> it is it is it's all AI. So this is from uh there's a there's a there's a guy called the Daily Chart book. That's not his name, but he happens to write a a research piece called the Daily Chartbook, and every day he puts out 30 or so great charts, and this is one of them. So we're looking at the momentum crowding score. I don't know how Barkclay's exact exactly calculated this, but whatever. It's at the 90th percentile. And so on Friday, we got a very quick unwind of this. By the way, the unwind has now rewinded. We're now back like DRM the ETF is up 12% today.
21:33 Um so Chart Kid, we have a chart kid. He he he's an artist. Um chart three. He made a chart. I said, "Hey, you know what? I think this is a great way to visualize what just happened >> when he'll become a chart man." >> On Friday through on Friday through Wednesday, the stocks I said, take a look at the stocks that were the furthest distance above their 200 day moving average and plot that against what happened over the last 4-day period. And it's a very clear story. the stocks that were the most extended. So on the y- axis, you see how far they are away from their 200 day moving average.
22:03 So Micron was 150% away from its 200 above its 200 day moving average. Yeah, people were a little bit drunk and they needed to sober up and they got a little bit of a slap on the wrist. So I thought that the selloff last week was long overdue, very much needed. Um I don't think that I I mean I definitely didn't think that we would bounce in two days. I thought it would maybe last a week, two weeks, but we needed it.
22:25 >> May I? >> Yeah, go ahead. Cook. Okay, not everything is AI. This is Casey's General Store, which is an outlier because it had an amazing earnings report. No AI. Literally selling pizza in gas stations in the Midwest. >> Okay. >> So, not everything. >> But, no, no, but that is the exception. Like you said, >> look at all of the bubbles. >> Those have those have one thing in common. WDC, Dell, Intel, STX. >> Well, let's make it let's make an important point to investors. I mean, investors are always asking me when I think volatility is coming or when I think a draw down is coming.
23:03 >> Hands up on that, too. >> Well, it's almost Josh, isn't it always the result of policy uncertainty? I mean, isn't that when it always comes back in? So, you what happened on Friday? I mean, I guess we're going to, you know, we don't have a deal with Iran. All right. So, there's some policy uncertainty there, but we've been doing that for weeks now. But we got 75,000 non-farm payroll number, which by the way gets revised 57,000 in either direction. So the last thing I want to do is freak out about a payroll number, but all of a sudden the market wants to raise expectations of one or two Fed rate hikes. So you start to get some of that uncertainty into the market and you get, you know, you get a selloff. I mean, it's not the earnings side. We talked about that, right? Earnings have been great. So, you adjust the discount rate. At some point, you're you're going to have some volatility in these markets, but I'm still in the camp and and I've said it already. I just I don't believe that we're in a persistent inflation environment and I don't believe the Fed's raising interest rates.
23:58 >> I think what you raised is such an important point because if not that we get a choice, but if if you if you were to get a choice, what is going to be the source of the market volatility? Door A, Nvidia just pre-announced to the downside. Okay. Any other door? >> Door B is Donald Trump versus Iran goes in a weird direction. Like you would take door B every single time. >> Correct. >> Nobody wants door A. And the good news is we don't have door A right now.
24:29 >> We don't. Or if there's a door C, I would think it would be some hint of stagflation, which I I always think is silly. Um, this is not stagflation. This isn't stag or flation, you know. Sounds like Linda Richmond on Saturday Night Live, right? >> Discuss discuss talk amongst yourselves. >> But yeah, it's not it's not stagoreflation, but but that's >> um I I mean I I probably talk about inflation break evens too much right now, but every cycle there's something new. I'm laser focused on, right? We all are, you know, wait in bank lending spreads, 2020 vaccination rates. To me, that's the story right now with oil where it is. As long as we have price stability, this cycle is going to keep on going.
25:07 >> Are investors taking too much risk? No, I don't think investors are taking too much risk as a group. I know it's hard to lump everybody. You don't think so? >> No. And and I >> which investors is the question. >> Yeah. I mean, >> all right, let's start. I don't think professionals are taking too much risk right now. >> I don't. >> Let's start with Let's start with that. >> Yeah. I don't think so. And I think individual investors are still very concerned about this. I hear, you know, at least anecdotally, or if you look at the bulls minus bears indices. I mean, you have people who, you know, get quite bearish very quickly when these types of events come around. So, I don't think we're overexposed to equities. Actually, if you break down US households um equities, fixed um cash, you're you're pretty much in line with um you know, you're pretty reasonable in terms of what percentage you have in each.
25:54 >> Let's do the margin debt chart. So, this is friend of the show, Liz Thomas. Huge fan of Liz's. I don't agree with the conclusion though that she's she said I remain bullish but not with my head buried in the sand. Margin debt looks high at the moment. Investors don't seem afraid of heights. She's showing she's doing it right. She's not showing at least >> she's not doing the dollar amount of margin debt which drives me crazy. She's doing it right. A percentage of money supply. M2 >> I would just say like of course margin debt would be at a high with the market at a high. Correct. It always is.
26:27 Correct. >> Wait a hold There's two things here because she did adjust, right? >> But she's adjusting by the wrong thing. >> Okay. So, but here's here's I think there's another thing that's driving this that people don't talk about. We do. >> It's rich people using margin debt to borrow. Like, so there's so much of that. There's so much of advisors driving that where it's not the indicator that it used to be. It's not people taking excess risk. It's people borrowing against highly appreciated portfolios to put it to work back into the real economy.
26:55 >> Right. I agree with that completely. And when people look at charts like these, they have to recognize that basically what you're signaling here is it's not a timing tool, right? You're you're suggesting that if this unravels at some point, there could be some vulnerabilities here, but you're certainly shouldn't use this as a timing tool because to your point, you should expect it to be higher given where the market >> the market pulls back 10% and stays down. No V just 10% pull back and then 3 months in a in a draw down that margin balance comes down. Correct.
27:26 >> Naturally, it doesn't it's not a nuclear bomb going off. >> People just get less bullish and and stop taking as much risk. >> That's the challenge. I think that when I speak to investors, I get the sense that people think something terrible is lurking. Uh and the reality is they've been thinking something's terrible been lurking for forever, right? And so, >> you know, try and I I always try to make sure that they're putting events into the proper context, right? If you, you know, the the war in Iran starts, I mean, that's going to be the big moment.
27:55 People are afraid. If you look at almost every time you have one of these geopolitical risks, market's positive 12 months later. Almost every time you have a 20% spike in oil prices, the market's higher 12 months later. And so, you know, investors, I think there's just too much of a news flow. There's just so many concerns and so many scare pieces out there where if they took a step back and they said earnings are good, credit spreads are tight, inflation expectations are contained, the dollar hasn't rallied to, you know, unnecessary levels. There's there's not a lot in here that would suggest we're in a danger zone.
28:30 >> So, you're doing this as long as I am. You and I roughly the same age. >> Yeah. >> Um I'm a little bit smarter than you >> and I'm a little bit older than you. >> Fair. Uh no, no, no. But like you and I know this, but that the average investor doesn't. And it's not their fault. I think you and I are now older than the average investor. >> Mhm. >> Close. Yeah. >> Is >> um the average investor is looking for a knockout punch.
28:56 >> Correct. >> In the headlines. They think a news event is going to happen and it's going to punch the market in the face and knock us into a bare market. >> Yeah, you're right. >> What they don't understand is that knockout punch comes at the bottom. So a great example is Lehman Brothers. >> We're already in a we're already in a 25 or 30% draw down, right? >> By the time Leman goes under, they went under because of the bare market. They didn't go under and then um and then that necessitates us having a bare market. Right. Right. Okay.
29:29 >> So they but they think like such and such thing terrible thing is going to happen which is then going to put us in a bare market. But the reality is we are much more susceptible to a real knockout punch once we're already in a bare market. And that happens the knockout punch comes as a consequence of the terrible environment that we have already found ourselves in for quite some time. >> Correct. And it usually >> but they don't they don't understand it.
29:59 They think it's like they almost think it's like Looney Tunes where like aing anvil like like somebody drops a piano on WY Coyote, >> right? >> Um and then a lump grows out of his head. They think it's like this cause and effect. It's not cause and effect. It's what environment are you in? >> The environment we're in right now, why would you be looking for a knockout punch? There's there's no debt problems. There's no credit issues. Private there's not private credit issues.
30:26 There's lack of investor interest in private credit. That is not that is not 2008. >> It's just human nature. >> No, I that I totally get because we've been wired that way to look for signs that there's danger. >> Protect the nest. I mean, like DM is I'm looking it's on my screen. It's up 13% right now. >> Finish my point. To finish my point, we're 18 years since the last actual recession. I'm throwing CO out.
30:50 >> Yeah, throw CO out. >> Okay. We're 18 years from the last recession. So for 18 years, people are looking for this knockout punch that's going to put us in a bare market and recession. >> What if you spent that time not doing that, >> right? Like you know, imagine >> and and you and we and you and I, we had to resp all of us, we had to respond to the European debt crisis. We had to respond to Brexit. We every single thing that happened along the way, we had to make sure that we were holding hands and guiding people through these environments. You even saw it last week.
31:19 I'm reading through my social feed and people are talking about, oh, the 30-year above 5%. This is the US debt problem that we've been worrying about. That's the trigger. That's it. Yeah, we're going to collapse on our debt or oh, inflation's here and valuations have to adjust meaningfully and it's just not it's just not a reality. You're you're you're not grounded. >> The cadence will be this. The top will look like this. There'll be great news and stocks won't react well to it. And then we'll all shake it off and we'll put out all these uh tweets about here's some context and then the market will rally back to a high but not the old high and we won't think much of it. It's just the eb and flow of markets and then like six months will go by since we've had a new high >> and people will start getting a little bit less enthusiastic because I don't understand I keep putting money in but it's not going up >> right >> and then so that is sort of how it happens and then if that goes on long enough we're in a 10% draw down >> which then becomes 12 or 10 and then you start to see the city economic surprise index roll over and all the surprises start coming in worse negative and then the knockout punch comes, we will already we will already be in a in a bad situation.
32:37 >> Right now, I mean, you want to play this game, today's the top. No, wait, wait, wait. I didn't mean today. Tomorrow's the top. You want to do that? You could do that. >> Right. And and people are saying, you know, this isn't grounded in fundamentals. This is too far too fast. Totally wrong. Right. I mean, that's what I'm hearing at the >> Too far too fast since 2009. >> 2009. Exactly. because they hyperfocus on they look at Micron and they say the stock's up 10x in the last year and a half this this is a bubble doesn't make sense >> right >> and they look at that and they don't look at the earnings growth but I think the longer this goes on without a real recession I think the more emboldened or confident people get that it has to end badly at some point like it's been too long >> but it's >> well that's that's the Minsky moment where people become so complacent that that becomes the risk the lack of the lack of fear itself becomes the biggest risk in the market let's think about what's happened this year. So you come into this year, people are talking about an AI bubble, right? That was probably the biggest question we got last year.
33:33 And I think a lot of that was more on the demand side. Are people actually going to use this? Are we going to engage with chat bots? Um are businesses going to make use of this? X percentage of businesses say they have no idea what to do with this to the market having to catch up in a fivemon period to the fact that artificial intelligence is going to be ubiquitous. It's going to be in everything that we do in perpetuity.
33:58 It's not going to be us engaging with a chatbot occasionally. It's going to be persistent engagement with artificial intelligence. And that's a level of growth and a shift in the economy that the market had to really get its head around. And the market wasn't there in the beginning of the year. And you look at what the earnings have been, the valuations haven't increased because >> they've come down. >> They've come down because >> respond to the earnings. What a concept.
34:25 So, one area of the of Josh asked like, "Are investors too bullish or are they taking too much risk?" I think there's probably a cohort of No, probably there is a cohort of retail investors that have been I hate to say lol to complacency. It sounds so condescending. >> Somebody that's made a,000% in AMD is is hearing me say that they've been lulled into complacency. It's like, "Hey, [ __ ] I'm up a,000%. What are you talking about?" It sounds rude. So, I don't mean it that way.
34:47 >> Complacent all the way to the bank. >> Yeah. Exactly. Exactly. So, I don't mean it that way. Um but uh retail investors, this is from Vander Research, biggest single stock selling, this was last week, since November 2023, $47 million led by semiconductor names such as Micron and SanDisk. So eventually they were taking too much risk and okay, so they sold a little bit, but they're they've done extraordinarily well. >> They have they have selling stocks to the point that we made in the earlier chart. They're selling stocks that have doubled or more.
35:17 >> Yeah. It was too crowded >> year to date. >> Yeah. >> All right. Uh, Sevita Supermanian, Bank of America, Equity Quant Strategy Group. Time to take profits. This was, I think, the biggest research piece of the week. >> I want to share some of what she said and get your reaction to it. >> Um, and we hate her, so you could say whatever you want. Uh, >> no, we do not. >> The S&P 500 is up 11% year-to date.
35:41 Multiples compressed to 21 from 22 times at the start of the year. and earnings revision that trumped returns, especially in energy and tech, the two best performing sectors. But financials, healthcare, and discretionary have seen losses year-to- date despite positive revisions. She doesn't like that setup where expectations are ratcheted up, but multiples are not reacting posit uh are not reacting positively. And she has a point because that's sort of one of her bare market signposts. She's got like these 10 things that are red flags and seven of them have now triggered >> uh 70% of her bare market which is the average that they've observed at prior market peaks. So she's the comparison that she's harping on is February of 2000 which for you and I very ominous very >> we know what what went on then. Um last last thing from her before I get your reaction. So she is saying high PE stocks led low PE stocks by a wide margin which is a sign of excessive spec speculation. That's one of her triggers.
36:49 Another trigger um lofty long-term growth expectations breaching levels consistent with equities being more vulnerable to disappointment. So that's that last point I made. Um the sellside indicator hasn't been triggered yet. That's where the strategists get all bowled up. But that has gotten worse because they're chasing the market quite frankly with their targets. Um, but she's talking about this dispersion tech versus everything else and then inside of tech like AI tech versus software or every other and that is reminiscent of the peak of the market in February 2000.
37:27 There's obviously a lot of differences here and she knows that and we know that. But I'd just love to get your take on this idea of time to take profits just based on how eerie some of the similarities are. >> I guess the the question would be if it's time to take market time to take profits, what are we doing with the profits? And is that going to cash and sitting this out for a while? >> No, they're call she's calling for a value rotation.
37:51 >> Yeah. So it's about a diversification story and a rotation. >> Take profits in tech. take profits in tech, move into more other cyclical parts of the market or move into non- US dollar assets. Um, yeah, look, that was our view two years in a row, and that view got disrupted two years in a row. So, what would what would you need for that? Um, you well, you have good starting valuations, but you need catalysts for it. Usually, the catalysts come from >> Yeah. from Fed easing. So, the rate differentials come down um between the US and the rest of the world. lower rates helps um you know the more higher indebted parts of the market. So you could get there. Um and I think that we will get there. I do think that we will get back. If you think about the second half of 2025, things broadened out a bit again once we got past liberation day.
38:39 So >> Oh yeah, we had international stock rally in 25. It was awesome. >> I I think we can I think we can get back to that place. Um but yeah, we're going to pro we're going to need to see um some type of reasonable outcome out of the straight or it's going to be difficult for um more cyclical parts of the market. >> Can I show you some charts? >> Yes. John 6. >> So So this is this is what she's talking about. The spread between the top and bottom performers inside of tech looks exactly like the dot bubble. um if you were a tech stock in in the year 2000 and not building the internet or mobile phones, nobody had any interest whatsoever.
39:21 >> We had a similar phenomenon this year. A lot of tech stocks not up um but just that one theme. Do these quickly chart 7 >> and the dispersion was not was a result of outsized gains from the top performers and that also happened in February of 2000 right at the peak of the the tech bubble. It was just this runaway group of stocks like you remember Cisco and Intel, Microsoft. Okay. Um, chart 8. We'll do these together. These are the red flags.
39:51 >> So, the spread between the best and worst S&P 500 performers is near COVID levels. Uh, not not a great situation. Hopefully, it's being fixed. We're in the process of that being fixed right now. And then the widest dispersion within info. So you can you can kind of mentally understand that that similarity just mark like the concentration of winners within one sector even to the exclusion of other companies in that sector. This is not like when energy rallies and they all go up, >> right?
40:22 >> This is like I don't know 800 publicly traded tech stocks at this point and 300 of them are up huge. That's the that's the scenario. So that doesn't have to fix itself with a crash. >> No, it does not. it could fix itself the other way which is what you're arguing >> which is with a broadening of the market. Now what you had in 2000, you had a rate tightening cycle, right? I mean that that's how the that's how these things end.
40:44 >> These things end with with higher rates and the economy that rolls over. The positive coming into this year was stimulus. Not not just in the US with the one big beautiful bill. >> Insurance cuts. >> Yeah. >> And insurance cuts, right? We were going to lower the funds rate to 3%. So So that's the big difference between 99 2000 and today. And I think that's why you get the selloff on Friday. Is this the beginning of the rate tightening cycle that ultimately ends it because you're not going to get a narrowing of that dispersion if you're not in an easier policy environment. I want to get your take on the consumer and the economy >> because there's been so much thrown at us starting in 2022 with inflation >> and then interest rates um and a commercial real estate crash which was going to take the economy down. It didn't.
41:38 >> Uh now we're dealing with a frozen housing market which is kind of a big part of the economy. Uh we dealt with tariffs. Uh the straight of Hormuz is closed. We have higher oil prices. Um, and yet the labor market seems to be accelerating. At least in in, you know, the last three months, we've we've been okay. What is it going to take to um to slow us down? >> Well, household net worth right now is about $175 trillion. That's an all-time high. And if you look at households, their liabilities to their net worth is historically low, >> dwarfed.
42:10 >> Yeah. So, the fundamentals of US households are far better than people think. You remember a few years ago when we were coming out of COVID, they were talking about credit card delinquencies and $6,000 balances and all. Turns out that was all just Taylor Swift tickets, so it wasn't a problem. No, that was all inflation related. So, the household's in good shape. We know we have a K-shaped economy, right? Because a lot of the household net worth gains have accred to the top part of the K. When you have spending that persists at the top income quentile or the second income quentile, you know, the economy is going to be just fine. It's when those quintiles really tighten their belt that you go into something more like a recession. If if the bottom income quintiles slow, not to be flippant about it, but that's more of a slowdown in activity. So, what we're having here, $4.50 nationally on gasoline hurts.
43:03 People in LA hate when I say that cuz what do you mean 450? >> But it doesn't hurt the stock market. but doesn't hurt the stock market because um you know this is not a very this isn't an economy that's overly energy intensive. >> Well, take LA take LA, take Malibu, Calabasas, whatever like whatever Tony area within LA. >> Yeah, they don't of course the gas price is stupid, but not one of them is changing their lifestyle based on it.
43:29 >> And those are the consumers that show up in the S&P 500's earnings. >> Yeah. the bottom 20% a lot of their spending frankly is government subsidized spending anyway. Um and they the earnings impact of that it's dimminimous. I'm not saying that's good or it's bad. I'm just making the reality of it invest in the world that we exist in. >> It's horrible to have 20% of US households living paycheck to paycheck and have like high gas prices stop them from being able to take their kids back to school shopping. It sucks.
44:01 >> Yeah. But it's also the re the the reality that the S&P is unfased by that, >> right? And that's when it becomes more calls about industry or sector, more specific names and discretionary gets hurt when you see gasoline prices go to where they are. But in terms of the broad market, the way that we're structured, it's not a very um you know, a near-term spike in gasoline prices is not going to >> You had one indicator like if if you were to just say this is the only indicator I'm paying attention to. So, as a call on when the top of that K is in trouble, Michael and I have been talking about hotel stocks. And some people would say like airline stocks but maybe less pure because they have that gasoline problem, a jet fuel cost problem. Yeah. So hotel stocks, >> hotel stocks seem like a great one.
44:48 >> Perfect, right? >> Perfect one. And I have a sister who works at Hilton. >> All highs, all those stocks doing quite well. >> So let me ask you this. There there's obviously a couple different takes you could have on this. We know that this economy and the consumer is heavily levered to the stock market. Obviously speak about the borrowing and the margin debt chart that I showed earlier. So at the peak in the tech bubble, John chart 11 please, the household equity allocation to stocks and mutual funds as a percentage of GDP was 116%.
45:16 And today it's 191%. So it's significantly larger today the amount of money that we have in stocks relative to the overall size of the economy. So you could say uhoh, if the stock market comes down, the economy is going to come down with it. And I don't I don't mean like the stock market cutting cut in half. I stock market gets cut in half because the economy is doing terribly, right? Okay. But I think that you can make the case that all right so 191% if this pulls back to 170% I'm talking about the wealth effect this pulls back to 170% does the does the consumer stop spending money like where where where would this line have to go >> right how bad does this have to get >> so the stock market spills over into the real world >> falls 30% and stays there like what would have to happen to the stock market to change the uppercase spending habits because that is what's driving the stock market and I know it's like sort of a circular conversation >> it's a circular conversation it doesn't have to end just because you're in the the circular momentum of it. It ends under similar conditions which is there's too much leverage and excess in the economy, too much inflation, the Fed kills it. So, at some point, we'll get there, right? It just at some point you will have an environment where this will become too excessive. Um, not necessarily where our stock market ownership is, but you'll have an overheating economy and this will roll over. And if it's a minor rec recession, you'll be down 20 25%. It'll take a a couple of years to get back to where you were. If it's a more significant recession, if you're way overlevered and you're coming at it from a very vulnerable position, you know, you could see it markets come down 40 50% and it takes 10 years to get back to where you are. It really depends on the starting point. And you know, Josh had mentioned earlier, it's not a particularly overlevered economy. We talked about the household being in in good shape. businesses are generally in good shape. Last I checked, net interest payments of businesses are historically well well below where they were um going into COVID. So I look for it as a as a not just because that number is elevated. Where are the vulnerabilities and it does not appear to be nearly as vulnerable as I think some people suspect it might be.
47:20 >> On the economic side, I would agree with you. But on the stock market supply side, so you wrote a you wrote a piece about um narratives following the stock market health and that's almost always the case, right? Like the stock market falls and we're looking for reasons as to why it did what it did. >> And I I'm 99% with you. I think in this particular recent sell-off, I think the narratives were pretty clean and actually shouldn't be swept under the rugs. So for example, Broadcom's revenue miss. Yeah, whatever. I mean, Micron had a massive beat in March. stock sold off 30% and then it rallied 300%. Right.
47:53 Right. So, like there's a lot of short-term noise in here. But, um >> the I think the strong job numbers and the rerating of expectations for rate hikes I think is real. Um I think the uh >> real in terms of it's having a real impact on psychology. >> It's having a real impact and it's it's it's in the it's in the market. Like people are expecting the Fed to raise rates. They just are. And I think that matters. I think the SpaceX IPO, we're going to talk about that in a second, certainly noteworthy. um with others coming down the pike. Is it pike or pipe?
48:22 >> It's either actually. >> Oh, is it? >> I think it is. Oh [ __ ] Okay. >> Yeah, it could be either. >> I think it could be either. >> Okay. Um but also >> if you're in England, it's the pike >> and a U in flavor. >> But but coinciding with the insane crowding into the momentum factor and also the Google equity issuance >> and it was there was chatter of wait are more companies going to issue equity like I think the stories are legitimate.
48:46 I thought that was a pretty big story with the Google equity issuance. Fair pretty much a non-event. >> It's but it's a narrative change. >> Berkshire Hathaway comes in and and invests in it. I mean, that's not usually what you would expect from a, you know, a long-term value investor if this was a a significant challenge where they take like 10% of it. So, yeah, I actually thought I looked at the Google event as a pretty promising event from, you know, from from that perspective.
49:11 >> Promising on the bullish side. >> Yeah, promising on the bullish side. I mean, you have a I mean, the market was able to digest that without incident. And you had a Bergkshire Hathaway stepping in wanting to own it. >> That's like the second deal he's ever done since taking over. >> Yeah. >> Greg Ael, like he did an acquisition and he did that within one week. >> Mhm. >> And it's a financing deal. He's not Bergkshire's not building data centers.
49:33 It's financial. >> On the SpaceX thing, Josh and I were joking the other day. I think Morgan Stanley said that their revenue could reach $3 trillion by I think it was 2040 or something. Like these are the type of things that if you look back and I'm not suggesting that this is the top, but that's the quote. That's like the thing you're like, "Wait a minute. How are we so stupid?" Right? >> Like it's they said $3 trillion in revenue in 2040 and we were just like, "Okay." Um, >> okay. So the other question is how much how much um liquidity is really available from investors pockets to finance all of this happening. Demand for this from Barren. Demand for SpaceX's $75 billion IPO stock has reached $250 billion, making it 3.3 times over subscribed. So, it appears like we're going to swallow.
50:15 >> It's a fake number. >> What? What? Go ahead. >> The overs subscribed [ __ ] is fake. So, do you remember Cerebrus went public in the middle of May? >> Mhm. >> I'm on TV next to people who are saying it's 20 times over subscribed. Well, what the [ __ ] did that mean? It went down 100 points over the next three weeks. Like that. You could just make up a number and say it to a reporter and they will go on the air and say the SpaceX deal is 12x over subscribe. First of all, where do you get that number from? Oh, an investment banker told me like nobody like actually knows what the demand is because indications of interest the in so you call up a retail investor in this case 30% retail say if we could get you if we can get you a 100 shares of SpaceX at $135 a share do you want it? Yes. You don't know if they're going to pay for it. Nobody know. If it goes up, they'll pay for it. If it goes down, they're not going to pay for it.
51:08 And therefore, I don't care how over subscri I did the indication of interest myself. I was a branch manager. I promise you it's [ __ ] But on my scale, these were tiny deals. We would raise $8 million for a company. At this scale, I would bet the [ __ ] factor is 10x because everybody wants stock. Everybody wants to be the lead placement uh uh person on this syndicative stuff. Like people are just calling in orders that are completely fictional to make sure that the real orders are covered.
51:40 And that's the other aspect of this. If you if you have legitimate demand for 2 million shares of SpaceX at an in at a uh at a investment firm, 2 million you put in for 10 million. >> Mhm. >> Cuz all you're hearing about is how overs subscribed it is. So, if I want the two, I better say I want 10. >> All right. Well, let me ask if I say I want two, I might get one.
52:01 >> So, retail will retail investors be left holding the SpaceX bag. >> They don't think it's a bag. They they they >> I didn't ask you. Will they be Will they hold Elon's bag? >> What does that mean? >> Are they Are they exit liquidity? Is the Is the IPO going to fall apart? >> Dude, I know retail people who are being offered stock that are able to sell a minute later. Nobody's telling them they have to hold it.
52:19 >> All right. Will will this fall 50% like a lot of other big IPOs in the first three months? I think a lot of that is so my personal opinion is a lot of that is pending what are the market conditions will this hold up in a in a correction definitely not >> okay let's assume let's just assume a normal market I'm I know I'm asking you to make a prediction will this thing fall 40% because it is hyped like I my dad asked me >> I think it will open I think it will open 30 to 40% above the offering price that's my that's my opinion um I do not think it'll hold that gain and I don't think it'll build on that gain >> they're coming to market. I think the price is 130. So you expect it to open whatever 170 180.
52:58 >> Okay. The price is 135. Do you know why? Because Elon told the banks the price is 135. >> So what? >> So what? A real IPO, a tradition, I shouldn't say real, this will be very real. A traditional IPO, it's a process. It's a road show. There's feedback from institutional investors, not retail investors, but like people managing $80 billion, $200 billion, tell the the the underwriters, we wouldn't pay 20, but we would probably be very comfortable paying 16. And then all of that gets factored in. And then of course, it's all made up because >> different Elon is Elon is a different.
53:39 >> So he said 135, so that's the price. And everyone's just like, "Yeah, that's that sounds right. Let me pay 20% above that. That's what's about to happen. I think they'll get the pop. I can't imagine them not getting it. Your real question is, does it hold the pop? >> No. My question is, all right, so you said it pops at 135 to 170, whatever. Will it be at 90 at some point in the next 6 months?
53:58 >> I think I think you'll get another crack at it at 135. >> I I think the bigger question is, is this just an idiosyncratic event happening in the market or is what are what we discussing here something, you know, >> larger right behind it, >> right? And is this something larger than that that investors need to be worried about? Um, I'm not ready to get there in my opinion that this is something that's >> like is it so much money to be raised that it's going to take a a bite out of the rest of the stock market?
54:25 >> They're going to take a bite out of the rest of the stock market or it's indicative of a market top. Um, and if you actually look at the IPO activity, yeah, we've got a couple of highprofile ones coming to market, but this is not the level of IPO activity that you would normally deem to be speculative. the the size of the big three are quite large, but it's not as if we've got, you know, speculative levels of IPO activity in these markets.
54:48 >> These will be heav heavily all three of these will be heavily involved in the big ETFs and that's the thing that people are talking about. >> That's what people are worried about. And you see these headlines that the AI bubbles coming for your retirement account, right? That's nonsense. That's nonsense. That's journalists. And that's what I want. Investment people are not saying that. >> Yeah. And that's what I wanted to make sure that we were covering here as we debate this. Is it just something idiosyncratic that we're going to be watching? It's going to be a stock story that we're going to be watching.
55:14 >> All right. Wait. So, two trillion. This is market caps, not dollars being raised. >> But just hypothetically, for index construction purposes, two trillion for SpaceX, a trillion for anthropic, a trillion for OpenAI, it's $4 trillion. Mhm. >> I mean that's meaningful amount of market cap that is going to require some space in the Q's eventually in the S&P >> eventually like right >> but wait but but they are being adjusted for the float dramatically adjusted for the float.
55:42 >> They well they they would have to be other otherwise it would make no sense. >> It's not SpaceX would not be a$ 1.8 trillion position in in the NASDAQ 100. >> Correct. They would go it'll be free float based or it would be less. >> They won't have the proportion of a 1.8 trillion. >> Elon's what does Elon own? 40%. So his So take that out of take that out. >> Right. Okay. So you're not worried about that? I'm not worried about >> that. You don't think that's a real win for the market?
56:04 >> I don't. >> How about the converse of that which is these IPOs or at least SpaceX comes goes off without a hitch, everybody's happy. Is that a bullish catalyst? >> Yes. Well, what are the bears going to say if this if these IPOs don't crash the market? What's next? >> The Bears want this to be an asteroid. >> It has to be for them, >> right? They do. >> So what if it's not? Is that what does that do? Does that galvanize the investing public that all is like all is well, this big bad thing that everyone's told you to worry about is over and look at the risk appetite. It's very healthy.
56:39 >> I think it does. I think it does. And I think it helps the financials. >> I So, okay. Well, it's definitely going to help the uh maybe not the spread financials, but the fee financials. >> The fee financials. >> By the way, to your point, I know you guys have a relationship with with with NASDAQ. Like NASDAQ stock is not doing awesome. You would think that if it does like a a super frothy, elevated, excessive IPO market that NASDAQ would be and I know you can't comment on the stock, but like it's whatever. It's going sideways. It's not there's no frothier.
57:06 >> No. >> Okay. So, not a wealth destruction event. >> No, not a wealth. >> The largest IPO in history will not be um Didn't they talk this way about Alibaba 12 years ago? >> Yes, they did. >> They said it's too big for the New York Stock Exchange. >> Yeah, I think we did this with Saudi Aramco, too. Yeah, I remember 2014 being an okay year in stocks. 2015, too. >> Hold on. Let me just say if this is a top, you are going to act like it was so obvious.
57:31 >> No, I'm not. >> Isn't that what we do? >> It's so obvious. >> No, I'm really I'm really not. But I but I won't like be completely shocked. >> I don't So I don't Here's the question. Are the bears saying it's a top because it's going to cause a top by virtue of sucking all this capital away from other or the bears saying it's a top because it's a sign of excessive enthusiasm or are they saying both?
57:58 >> I've heard both. I've heard both but I think it is that sign of excessive enthusiasm. >> You know like your parents tell you when somebody gives you two reasons for something both are not true. >> Yeah. Like that's how you know they're like uh I call Michael and I say, "Hey, um you you want to you want to go hit golf balls in the driving?" And she's like, "I'm not feeling well and also my wife needs me to help her."
58:19 >> Neither neither are you. So neither is true. Neither is true. >> Have plans with somebody else. >> Right. Exactly. >> She's sick of listening to the sound of my voice. And I totally get that. >> I think it's a valuation story. I think that investors just there's plenty of investors who would think of eval valuations as a timing tool. think that, you know, the if things are getting frothy, if the if the Schiller PE is too elevated, if the margin levels are this all can't be true. And so, there's the Big Bang moment coming. And when it wasn't Silicon Valley Bank, then it was tariffs. When it wasn't tariffs, then it was the war in Iran. When it wasn't the war in Iran, now it's going to be SpaceX. And and you know, >> I love this so much. So, there's like this thing where 17 of 20 indicators are flashing red. Well, if they've been flashing around for three years, maybe they're the wrong indicator.
59:03 >> Maybe they're the wrong indicators. I I mean, I try to keep it simple and you know, like, are credit spreads widening? >> No. >> No. >> So, what are the things that matter to you? >> Credit spreads. They tell you what you need to know. >> So, so I I look at leverage, inflation expectations, Fed policy, credit spreads, bank lending standards. That's my cycle analysis. >> So, I noticed that you don't have anything in there about chief strategist price targets.
59:25 >> No, I don't have chief strategist. >> You also don't have anything in there about PE ratios? >> No. No. No, because PE ratios would I mean if I the where I would use a PE ratio is if I was making a 5 to 10year return maybe more like a 10year return expectation you would need to have some reversion to the mean on valuations over a 10-year period because there's a high you know correlation there but there's nothing with you know >> say your list again say your list again >> all right let's start with >> credit spreads >> credit spreads bank lending standards the strength of the dollar inflation expectations um leverage.
59:59 >> What does the strength of the dollar tell you about the forward uh outlook for stocks? >> Well, it's interesting that the dollar has not rallied substantially. So, if we think about, you know, in 2015 in a very weak growth, deflationary environment, the Fed was going to raise rates, the the dollar soared. >> That's not what this is. I mean, the dollar was likely to weaken this year till the war in Iran started. And so the dollar's had a reprice basically from expecting um an easing cycle to no cuts to maybe a rate. So the dollar gets a bit of a bid there, but it's not skyrocketing. It's not going to levels that would make you think there's this huge flight to quality and um and and that the the cycle's rolling over. What do you think is the most underrated thing going on in the economy or the markets or both um that should augur?
60:52 Well, so we talked about all the bare stuff. >> Yeah. >> What are the what are the things that not enough people are excited about? Like for me uh let me let me set this up. So I we did a segment today on CNBC about one of the names on my best stocks in the market list and it's about Travelers. Travelers is like not an exciting company. It's a couple of bucks away from an all-time high.
61:14 >> Why? They're one of the first companies that's got tangible evidence that their AI investments are. >> So, if you think about all the areas where AI should help companies, >> risk risk management and insurance underwriting should be the top of your list. This is like the most obvious thing in the world. We have algorithms. Let's let the AI loose on those algorithms and see if we can improve how much money we end up surrendering um but from bad uh underwriting. So, they announced a 21% year-over-year jump in underwriting profit. And on the conference call, they told Wall Street, "This is the [ __ ] AI." Like, this that's what's going on. It's not a it's not a a magical thing.
61:59 >> No. >> Okay. So if the rest of the market becomes littered with stories like that about stocks where nobody is associating them with the AI but the AI customers start to surprise on earnings to the upside. A you'll get your broadening B it would be a really interesting juxiposition versus the last three years where we all have been um myopically obsessed with the 100 picks and shovels companies.
62:31 selling less AI. Wait, what if the real trade all along was investing in the most talented consumers of AI as they outdistanced their competitors in earnings growth thanks to those investments? Wouldn't that be such a cool story and great for investors that were what? So, what do you >> Absolutely. And we're So, >> you think that's likely? >> Yeah, I do think it's likely. I mean, I think it's already starting to happen in many ways. I mean, we're in the early innings of this. So, you're right. We started with the the chips and we moved to memory and the infra the infrastructure build, but what about all the benefits? I mean, we're starting at this from an an environment where corporate profitability, the number of employees is historically high, and that's only going to get better in the coming years. And you think about sectors that have not done well like financials or like health care. Um, I mean those are places of the market where you would expect to see substantial gains as a result of of incorporating artificial intelligence into that business, particularly healthcare. Thinking about all of the challenges of life that we're going to unlock with new solutions. One of the problems uh and we could end on this.
63:43 One of the problems with the picks and shovels analogy is people forget that that analogy during the internet boom era, the first one, it was sardonic. They were saying because in the actual gold rush, the 1849 gold rush in San Francisco, there wasn't any gold. Like people ruined their lives chasing up up into San Francisco to look for gold that was never there. like a few people found gold and it was it it was like uh it was a catastrophe for the people but like the idea was like well at least the picks and shovels salespeople made money. Actually the company that made the most money was Levi Strauss selling selling uh denim workware but fine. Um >> we better hope this isn't picks and shovels and this is a a failed gold rush.
64:35 >> I don't think it's going to be. We're using AI inside of our business right now. probably 1% of what we'll be using five five years from now. And I think and we're, you know, considered, I guess, a small business. Um, midsize businesses and publicly traded largesiz businesses. It's not a gold rush. They're literally improving their companies. So, the picks and shovels analogy is like it's almost too smartassy. This is like this is real. So, if we're going to have a continued bull market, I think it'd be really cool if it were powered by ROI from all the spending that we're doing in 2026.
65:12 >> I agree with you completely. >> And you think it's likely? >> I do think it's likely. Absolutely. I don't see how this movement, this restructuring of the economy and this restructuring of how businesses um are are run. I don't see how that doesn't improve efficiencies. I don't see how that doesn't improve profitability. and do it at a level where you're I mean you're going to be doing it at a way that's going to be likely lowering the costs of business.
65:37 >> You said something early on about the ubiquity of AI right now. Mo for most people their experience with AI is prompting and asking for something. >> It's like a search engine. >> You're talking about waking up and seeing the results of what your AI did for you overnight. Yes. >> That's where we're Okay. This is a very different mentality and most people haven't gotten there yet. Well, and quite frankly, like I said, the market had to catch up to it this year.
66:03 >> I agree with you. Agent, the market wasn't ready for a gentic. Correct. The market was still thinking in prompting terms. Yeah. All right, Brian, you're the man. You have fun on the show today. >> I had a great time. Thank you. What was your favorite part? >> Probably talking about the next. >> All right. Uh Brian, we always try to end the show when we remember asking people what they're most looking forward to. What do you got?
66:24 >> Personal, business, anything. I'm looking forward to next week when my uh oldest daughter graduates high school. >> Look at you. Look at you. >> Yeah. Hard to believe. >> Yeah. Did you find her uh did you find her uh an internship for her junior year of college yet? You have three years. Well, >> she wants to be Eron Andrew. So, you know, we're I guess we're sort of in the media business. If if you know anyone that uh can get her a sideline reporting job, let me know.
66:47 >> All right. We'll try to figure that out. All right, guys. Thank you so much for watching. Thank you for listening. I want to let you know you can follow Brian Levit of Invesco on LinkedIn. You doing anything else on social or not really? >> I have a podcast. >> Okay, tell us about it. Where do we find it? >> Greater Possibilities podcast. Um, anywhere you find podcasts. >> The Greater Possibilities podcast with Brian Levit. Anywhere find podcasts are played. Make sure you check that out.
67:14 Thank you so much for this. Great to see you. >> Great job everybody. See you next week. Thank you.